Hologic, Q4 2020, Sales Results

On January 27th, Hologic announced its financial results for Q4 2020. Due to the companies reporting cycle, this is its first fiscal quarter. These results show that Group sales revenue continued to grow at an explosive pace during the quarter, driven by COVID-19 related demand from the diagnostics segments. During the quarter, group sales reached $1,610m, compared with $851m during Q4 2019, an increase of approximately +90% year-on-year. This propelled cumulative 2020 sales to $4,536m, compared with $3,387m during 2019, an increase of approximately +35% year-on-year.

Diagnostics

The company has four reportable segments; diagnostics, breast health, surgical and skeletal health. The explosive sales growth was driven by the diagnostics segment which reported sales growth of +260%. This is the second consecutive quarter of sales growth >200% for the diagnostics segment. During the quarter, sales from diagnostics reached $1,128m, compared with $313m in Q4 2019.

The diagnostics segment includes its Aptima family of assays, Panther solutions as well as its latest product, SARS-CoV-2 assays to diagnose Coronavirus disease. The sales growth during the quarter was driven by continued unprecedented global demand for both COVID tests and Panther systems. During the quarter, 150 Panther systems were shipped to customers, taking the global installed based in approximately 2,400 systems. During 2020, the company shipped approximately 500 new Panther systems worldwide which was more than double usual unit volumes. During the quarter, the company shipped approximately 30m COVID test, generating approximately $745m in sales revenue. The company continued to expand its manufacturing capacity at its plants in San Diego and Manchester, UK. During the Q4 earnings call, Stephen MacMillan, Chairman, President and CEO commented: “We are now selling more COVID tests each quarter than we had ever produced of all of our molecular tests before the pandemic. And we are on track to meet our goal to produce at least 75 million total molecular diagnostic tests a quarter globally by January of 2022. This would represent more than 3.5x our total capacity pre-COVID.”

Breast Health

Total sales from the breast health segment reached $332.7m during the quarter, compared with $331.1m during Q4 2019, a marginal increase of +0.5% year-on-year.

Although sales returned to growth during the quarter, full-year sales remained significantly lower. Cumulative 2020 sales reached $1,154m, compared with $1,321m during 2019, a decrease of approximately -13% year-on-year.

During the quarter, the breast health business returned to slight growth in all geographies except for Latin America. The division’s performance was driven by the interventional business, which grew 15% in the quarter and was helped by the re-launch of the Brevera biopsy system. The service business continued to have a stabilising effect on revenues as demand for capital equipment has been negatively impacted by the Coronavirus pandemic. Sales revenue originating from services accounted for over 50% of sales during the quarter and grew by a mid-single-digit e.g. +6%. In addition to service revenues, the business has been strengthened by its recent acquisition of Somatex.

The breast health segment includes breast imaging and related products and accessories, including digital mammography systems, computer-aided detection (CAD) and breast biopsy guidance systems. Sales originating from the breast health segment also encompasses the companies stake in SuperSonic Imagine as well as breast-related products from its prior acquisitions of Focal Therapeutics and Faxitron Bioptics. The segment continued to be negatively impacted by the Coronavirus pandemic although sales performance significantly improved relative to the prior quarter.

GYN Surgical

During the quarter, sales origination from the surgical segment reached $124m, compared with $119.1m during Q4 2019, an increase of approximately +4% year-on-year.

This took cumulative 2020 sales to $381m compared with $448m during 2019, a decrease of approximately -15% year-on-year.

The GYN Surgical segment includes the NovaSure Endometrial Ablation System and MyoSure Hysteroscopic Tissue Removal System. The sales performance during the quarter continued to be negatively impacted by COVID-19 although sales grew despite this headwind and the impact the pandemic is having on elective procedures. During the Q4 earnings call, Stephen MacMillan commented: “both our R&D and business development pipelines have been productive, broadening the portfolio of products that we sell through a high-performing, highly engaged sales force. New products such as our Fluent, fluid management system and new hysteroscopes are complementing our market-leading MyoSure and NovaSure devices, and helped that division return to growth in the first quarter, well ahead of schedule. On the business development front, in August we spent approximately $80 million, plus future contingent earn-outs to buy Acessa Health. Acessa’s ProVu is a laparoscopic RF product that is used to treat fibroids that MyoSure can’t reach, so it’s very complementary to our Surgical business and a nice fit for our sales force. And so far, early feedback from our customers has been good.

Skeletal Health

During the quarter, sales originating from the skeletal health segment reached $24.9m, compared with $23.5m during Q4 2019, an increase of +6% year-on-year.

This took cumulative 2020 sales to $82m compared with $87m during 2019, a decrease of approximately -15% year-on-year.

Group sales by geographic region

From a geographical perspective, the sales growth during the quarter was driven by explosive sales growth from customers based within the United States as well as Europe. Sales from these geographies were +32% and +97% higher year-on-year respectively. Growth from these geographies was partially offset by lower sales from Asia-Pacific and the rest of the world. During the quarter, approximately one-third of COVID test revenue came outside the United States, mainly from Europe. These COVID sales contributed to total international revenue of $472m in the quarter.

Expectations for 2021

During the Q4 earnings call, Karleen Oberton, CFO, commented:

“We anticipate that fiscal 2021 will be an excellent year for Hologic overall, but our business environment remains fluid due to the ongoing effects of the pandemic. Therefore, we are only providing a single quarter of guidance today. Let me also point out that our guidance does not include the impact of the pending Biotheranostics acquisition, which has not yet closed.

In the second quarter of fiscal 2021, we expect excellent financial results again, with total revenue in the range of $1.5 to $1.56 billion. This represents an approximate doubling of organic revenue growth, to roughly 96% to 104%.

Underlying this, we expect similar sales of our COVID tests to drive exceptional Diagnostics growth. As a reminder, most of our new molecular production capacity is expected to come on-line in the second half of our fiscal year. Blood screening revenue, which we back out of our organic calculations, is expected to be about $10 million in the quarter.

In our other businesses, let me remind you that March quarter sales are typically down sequentially compared to the December period for our Breast, Surgical and base Diagnostics businesses, as capital sales and semi-elective procedures tend to be seasonally stronger at the end of the calendar year.

In addition, our guidance incorporates headwinds related to customer spending constraints and restrictions on procedure volumes given rising COVID cases. While our customers are much better- prepared than they were last spring to manage through local increases in COVID prevalence, we have seen a recent slowdown in some elective surgeries.

On the bottom line, we expect EPS of $2.56 to $2.68 in the second quarter, with extraordinary growth rates that significantly outpace revenue even as we increase investments for future growth. To put this in perspective, we expect to earn more in the second quarter alone than we did in the full year of 2019.

This second-quarter guidance is based on a tax rate of 21.75% and diluted shares outstanding of 262 to 263 million for the quarter. I’d also like to point out that we expect other expenses, net, to increase to close to $25 million in the second quarter, as we don’t forecast gains or losses related to certain hedging activities like we saw in the first quarter.

As you update your forecasts, let me remind you that macro uncertainty has increased in recent weeks due to the pandemic. While our visibility has improved compared to several months ago, we would still encourage you to model in the middle of our ranges, which incorporate both potential upsides and downsides.

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